Student loan defaults don’t get you off the hook, and they have an immediate impact on your credit score. But it’s possible to recover and get your student loan default removed from your credit report. This step will get you closer to becoming debt-free and can help you qualify for better financing. Credit scores become especially important when you apply for a mortgage or auto loan. Removing student loans from your credit report can make a big difference, and this article outlines some of the steps you can take.
How long do student loans stay on your credit report?
On-time payments toward your student loans will improve your score, but if you default on your loans, that event will stick around for seven years. Even when the student loan default leaves your credit score, you are still responsible for the balance.
How to get student loans off your credit report
It is possible to get your student loans off your credit report and repair your score in the process. The process is different based on the type of student loan you have and whether you are eligible for student loan forgiveness.
Understand your type of student loans
There are two types of student loans: private and federal loans. Federal loans are more favorable because the government has several programs in place that make it easier to get out of default and start repaying the principal. If you borrowed student loans from a private lender, you would have to reach out to the lender and ask about its policy for getting out of default. This process can take additional steps and result in more fees, but it’s best to get your loan out of default. It is very risky to remain defaulted on a loan and has numerous disadvantages.
Federal student loans
Federal student loans have more benefits and programs that can help you get back on your feet. Since the pandemic, interest rates on federal loans have been 0%, making it easier for borrowers to catch up on their payments and trim their debt. You can use the federal government’s loan rehabilitation or debt consolidation programs to get out of default. The government also gives you the option to repay the balance in full right away, but most people use the other two choices to get out of default.
Private student loans
Private student loans are more difficult to navigate than federal student loans. Borrowers will have to negotiate a new payment plan or debt settlement with the lender. Most private lenders do not have a loan rehabilitation program. That means the defaulted loan will remain on your credit report for seven years — even if you negotiate a new payment plan. It’s still important to get back to monthly payments because it’s worse to remain defaulted on a loan. Scammers may tell you that it’s possible to remove a private student loan default from your credit report, but that’s only possible if it’s on your credit report by mistake. Most private lenders do not have loan rehabilitation programs.
Review your credit report
The major credit bureaus record your credit activity and use that data to assign a credit score. These credit bureaus aren’t perfect, and they may make mistakes with your credit report. A recently rehabilitated student loan may still show up as a defaulted loan. Each of the three major credit bureaus lets you review a copy of your credit score for free once a year. You can check your credit report and dispute any errors. If one credit bureau makes corrections, those corrections will show up in the credit reports from the other credit bureaus.
Check whether you qualify for student loan forgiveness
Some borrowers may be eligible for student loan forgiveness. While the one-time $10,000 student loan forgiveness program is in limbo, you can still qualify for loan forgiveness under other conditions.
How to handle defaulted student loans
Falling behind on your student loan payments and risking default can cause serious damage to your personal finances. Handling a defaulted student loan and getting on the path to recovery can strengthen your finances and help you qualify for a better mortgage or auto loan when the time arrives.
Loan consolidation
Loan consolidation is the process of taking smaller debts and lumping them together into a single loan. You can take multiple student loans and put them into a federal loan that may have a lower interest rate. The federal government does not charge you for this process. Private lenders can also consolidate your student loans, but this will result in a fee.
Loan repayment plans
You can set up a new loan repayment plan to get on top of your current balance. You and the lender can reach an agreement on new terms. The lender may stretch out your loan to spread the money across more years, reducing your monthly payment in the process. The federal government offers income-driven loan repayment plans. Most of these plans ensure you do not have to allocate more than 10% of your discretionary income toward student loan payments.
Loan rehabilitation
The federal government and some private lenders offer loan rehabilitation services. This option lets you remove a student loan default from your credit report. Requirements vary for the few private lenders that offer loan rehabilitation services. The federal government lets borrowers rehabilitate their loans if they make nine consecutive loan payments over 10 months.
Rebuilding Your Credit After a Student Loan Default
A student loan default will make a dent in your credit score, but it’s possible to rebuild your score back to a good range. Getting the loan out of default and making on-time payments is a great way to start. Once you take that initial step and stay focused on improving your finances, it can become easier over time.
FAQ
Can you legally remove student loans from your credit report?
You can remove student loans from your credit report if you rehabilitate the loan or if it was put on your credit report by mistake.
Do old student loans ever go away?
Old student loans leave your credit report after seven years, but you still owe unpaid debt.
How long does it take student loans to get out of default?
Under the federal government’s Student Loan Rehabilitation Program, you can get the default removed from your credit report in 10 months.
